FarmPolicy

June 26, 2019

U.S. Likely to Appeal WTO Cotton Decision

Dow Jones writer Bill Tomson reported yesterday that, “The Bush administration will most likely appeal a recent World Trade Organization decision that the U.S. has not done enough to comply with an earlier WTO ruling that the U.S. needs to scale back subsidies for cotton farmers, U.S. Department of Agriculture Under Secretary Mark Keenum said Tuesday.

“Keenum said he was ‘hopeful’ the U.S. could win the appeal, but at the same time said he would like to see Congress pass a new farm bill this year that contained less controversial forms of subsidy support.

“‘You’ve got to look at the fact that we’re going to have a new farm bill, we hope, in 2007,’ Keenum said. ‘That may give us something to work with (to) defend ourselves.’”

And Reuters news reported yesterday (via DTN, link requires subscription) that, “The United States will likely fight a new World Trade Organization ruling, the latest step in a landmark case against U.S. farm subsidies, that found U.S. reforms to cotton supports wanting, the Agriculture Department said on Tuesday.

“Agriculture Undersecretary Mark Keenum told reporters he believed the Bush administration would appeal the findings, released to Brazil and the United States on Monday in a final report from a WTO compliance panel.

“Keenum, who oversees crop subsidy and export programs, said he hoped the United States could prevail in the case, a watershed in international trade feuds, despite repeated rulings in Brazil’s favor.”

The article added that, “The comments from Keenum go a step beyond what U.S. trade officials, who say only they are ‘studying the report closely,’ have signaled about an appeal. An appeal could last into the middle of next year.”

The Reuters article indicated that, “The United States, responding to a 2005 appeals ruling, has already eliminated its ‘Step 2’ subsidy, which encouraged exporters and domestic mills to use U.S. cotton, and has reformed some export credit support. Groups speaking for the 25,000 U.S. cotton farmers insist U.S. supports are fair.

“But Brazil wants to see deeper reform, pointing in particular to two price-triggered subsidies that are a mainstay of U.S. crop supports.

“Those are marketing loans, which effectively assure a minimum price for grains, cotton and soybeans, and counter-cyclical payments, made when returns from sales and subsidies are below targets set by Congress.”

Interestingly, Bloomberg writer Jonathan Stearns reported yesterday that, “Brazil may spare the U.S. any retaliation over cotton subsidies because of the political and economic costs, settling for a ‘moral’ victory in a World Trade Organization dispute, said Brazilian Agriculture Minister Reinhold Stephanes.”

The article stated that, “The remarks highlight the challenge of enforcing international trade rules and upholding the WTO’s credibility. A WTO panel first ruled in September 2004 that as much as $4 billion a year in U.S. aid to cotton growers violated trade rules by pushing world prices down because of excess production.

“After the 2004 ruling, the U.S. eliminated part of its export-credit guarantees and a program that paid exporters and U.S. mills to buy cotton grown in the country. Brazil argued that the U.S. failed to cut marketing loans and stipends to farmers when crop prices fall below a threshold level, which the Geneva-based WTO also said depresses world cotton prices.

“‘I see this kind of conflict as the typical situation where you win, but you don’t get any compensation,’ Stephanes said. ‘Victory has a moral effect only.’

“He said his remarks were a ‘personal opinion about the complexity of the process of taking retaliation measures’ and the ultimate decision would come from the Brazilian government and President Luiz Inacio Lula da Silva.”

However, an article posted yesterday at AllAfrica.com reported that, “Cotton industry officials in West Africa’s largest cotton producing nation are celebrating a ruling by the World Trade Organization (WTO) that US government subsidies to cotton farmers there undermine free trade.

“‘I am hopeful that the situation here will get better,’ said Francois Traore, President of the African Cotton Producers Association. ‘At least it tells the truth that there are distortions against Africa’s development interests.’

“According to Traore, who is also president of Burkina Faso’s National Union of Cotton Producers, the WTO and the international community are now obliged to force the US to respect the ruling.

“‘Subsidies are preventing us from living,’ Traore said. ‘If nothing is done, we can now say that nobody wants us to develop.’”

The article added that, “Visiting Burkina Faso on 15 October, Brazil’s President Luiz Inacio Lula Da Silva called on the WTO to keep backing Burkina Faso and Benin, Chad and Mali which together form Africa’s ‘C4’ group which has lobbied for changes to US subsidies. ‘We must work together to protect [our] farmers so that they can gain competitiveness on the international market’, President Da Silva said.”

In news regarding the Doha round of WTO trade negotiations, Bloomberg writer Kartik Goyal reported yesterday that, “India’s Prime Minister Manmohan Singh told U.S. President George W. Bush that the country’s concerns over the Doha round of trade talks are confined to agriculture, indicating compromise on issues such as services.

“‘India can by and large live with what is on the table and has concerns only on agriculture,’ Singh told Bush in a telephone conversation last night. ‘We will try to help in reaching a compromise.’”

The article noted that, “Singh’s statement may set the tone for a meeting this week among the leaders of India, South Africa and Brazil, which the U.S. wants to lead to an agreement on industrial tariff cuts. The three nations and other African and Latin American countries have complained that the current negotiating framework would require them to make deeper cuts in their industrial tariffs than the U.S., the European Union and other developed nations.”

The Bloomberg article stated that, “Singh will instruct Nath [India’s Trade Minister Kamal Nath] to work on reaching a compromise, according to the release issued late yesterday by the Indian government after the conversation between the two leaders.

“‘India remains committed to the successful conclusion of the Doha Round at an early date,’ Singh told Bush.

“Singh, however, insisted the government would not compromise on its demands on farming. More than half of India’s 1.1 billion population depend on agriculture for their living.”

Meanwhile, an article posted yesterday at the Hindustan Times Online reported that, “As [Kamal Nath] left [London] to meet [WTO Director General Pascal] Lamy after his speech, he told reporters that he was hoping the Geneva talks would not break down, but said that it was up to the US and the European Union to talk among themselves and rescue the [Doha] negotiations.”

With respect to Europe, Charlie Rose interviewed EU Trade Commissioner Peter Mandeslon last week, and in part, the interview mentioned the Doha talks. According to a transcript of the conversation, this exchange took place: “CHARLIE ROSE: Anything you want to add about the next Doha round that is so vitally important? Have we missed a point here?

“PETER MANDELSON: Three points. One, it’s worth $200-plus billion a year for world trade and jobs and jobs security if we get it right. Secondly, we’re in now the final, sort of final stage of these negotiations where I believe the United States has a key role — not the only role, but a key role in giving leadership to those negotiations.

“Thirdly, if we get it wrong, we not only lose the opportunity of that boost to world trade and boost for jobs around the world, but we’ll damage the international trading system, which will have consequences for decades to come in my view.”

***

In Farm Bill developments, Julie Harker of Brownfield reported yesterday that, “Senate Ag Committee member Chuck Grassley says he just met with Chairman Tom Harkin who says he wants to take up the Farm Bill next Wednesday, October 24th.

“‘His statement was that he thinks if they continue to work things out the way they have so far, it’ll go fairly quickly.’”

Also, Reuters news reported (via DTN, link requires subscription) yesterday that, “The new U.S. farm law would make a small cut in the $5.2 billion guaranteed annually to grain, cotton and soybean farmers under a proposal circulated among farm-state senators on Tuesday.

“Higher wheat subsidies also were under discussion as part of a ‘rebalancing’ of crop subsidy rates. Farm lobbyists and Senate staffer workers said there was no agreement on a successor to the popular 2002 law that expired at the start of this month.”

The Reuters article added that, “‘There’s no deal yet. They don’t have the money,’ said one farm lobbyist, who spoke on condition of anonymity. For weeks, senators have searched for ways within a tight budget to put more money into public nutrition, land stewardship, biofuels, rural economic development and specialty crops.

“Under a plan from Harkin, Iowa Democrat, farmers would receive a smaller guaranteed payment if they enroll in a ‘revenue protection’ program. At present, farmers get extra subsidies when crop prices are low. Revenue protection would shield growers from crop failure and price collapse.

“A spokesman for North Dakota Democrat Kent Conrad, an Agriculture Committee member, said large cuts in the guaranteed payments, which are known as direct payments, were out of the question. North Dakotans would accept smaller cuts as a way to free up money for other priorities, he said.”


U.S.- EU Biofuels: B99 and “Splash and Dash”

Recall that on October 4, FarmPolicy.com stated that an update posted at the Energy Roundup Blog (The Wall Street Journal) back in May reported that, “Could the next WTO trade dispute be about biofuels? Keep your eyes peeled: Despite the industry’s youth, there are already warning signs that top biofuel producers including the US, the E.U. and Brazil have pulled on their boxing gloves and are gearing up to duke it out.

“In a little-reported tussle, the EU is considering a WTO suit or retaliatory tariffs against the U.S. for allowing B99 biodiesel sourced from other countries to qualify for a hefty $1-per-gallon U.S. blending subsidy. The biodiesel is then shipped to the EU, undercutting prices. Some traders even employ a trick called ‘splash and dash,’ which takes biodiesel from the EU, ships it to the U.S. to pick up the subsidy, then ships it back, says The Independent. U.S. biodiesel producers, for their part, say they are all in favor of snuffing out the loophole.”

(For more background on this issue, see “Biofuel Boondoggle: US Subsidy Aids Europe’s Drivers.” Mark Clayton. The Christian Science Monitor. (June 8, 2007); and, “Loophole in Biodiesel Tax Credit Prompts Outcry.” Emily Harris. National Public Radio (September 2, 2007)).

More recently, Grant Ringshaw reported on September 30 at The Times Online that, “Biofuels firms are demanding the British government and the European Union take action to stop American rivals exploiting subsidies to flood the European markets with cut-price fuel.”

The article added that, “American companies have been exploiting federal government subsidies and rebates offered by European countries including Britain. Under the US scheme, biodiesel producers are paid a subsidy of $1 per gallon, or 11p per litre. But the groups can also claim 20p per litre in excise duty rebates by importing biofuels to the UK in effect ‘double dipping’ on tax relief.

“The American fuel, known as B99, is a blend of 99% soya biodiesel and 1% mineral diesel. It is being sold at about $860 (£420) per tonne, far cheaper than the $1,114 price of raw rapeseed oil before it has been refined to create biodiesel. Refining typically costs $125 a tonne.

“The European biofuels industry is demanding the EU looks at measures including placing duties on US imports. In America, Congress is considering a bill that would only allow firms to claim the subsidy on biofuels used in the country. However, it is feared the bill could take more than a year to become law.”

With this background in mind, DTN writer Chris Clayton reported yesterday (link requires subscription) that, “European drivers will still benefit from cheaper biodiesel, courtesy of American taxpayers, after the Senate Finance Committee earlier this month chose not to tighten the way a $1-per-gallon biodiesel fuels tax credit is used.

“European drivers might get cheaper fuel, but the European Biodiesel Board wants subsidized U.S. exports stopped and is threatening to sue over the issue. But Congress is reluctant to change the biodiesel fuels tax credit though foreign seed oil often is delivered to U.S ports purely to collect the tax credit en route to Europe.

“The U.S. has sent an estimated 220 million gallons of methyl ester soybean oil to Europe this year compared with about 30 million gallons in all of 2006. Those soybean oil exports collect the $1-per-gallon tax credit before the product is sent out of the country.”

Mr. Clayton indicated that, “Members of Congress vowed to get rid of the splash and dash ‘abuse,’ as did the National Biodiesel Board in March after the European Biodiesel Board first complained in a letter to the European Trade Commission about unfair biodiesel competition from the U.S.”

In conclusion, the DTN article pointed out that, “Right now, large shares of the biodiesel being produced in the U.S. is exported to Europe, largely to the Netherlands. Besides the tax credit in the U.S., there is a tax exemption on biodiesel in Europe.

“‘The majority of the stuff going to Europe is biodiesel made here, then they blend .1 percent diesel in it, collect the subsidy, then they export it to Europe,’ said John Baize, an oilseeds consultant for World Perspectives Inc. in Washington.

“The issue goes beyond splashing foreign palm oil, Baize said, because U.S. taxpayers believe they are supporting the renewable fuels industry as a way to potentially reduce U.S. dependence on foreign oil.

“‘The philosophy on this is simple: They passed the biodiesel credit to increase energy independence, not to subsidize European drivers,’ Baize said.”

In other issues associated with biofuels, The Wall Street Journal editorial board stated today that, “If the Senate’s new ‘renewable fuels’ mandate becomes law, get ready for a giant slurping sound as Midwest water supplies are siphoned off to slake Big Ethanol. House and Senate negotiators are preparing for an energy-bill conference, and if the Senate’s language prevails, America’s economy will be forced to consume more than five times current ethanol production.

“Heavily subsidized and absurdly inefficient, corn-based ethanol has already driven up food prices. But the Senate’s plan to increase production to 36 billion gallons by 2022, from less than seven billion today, will place even greater pressure on farm-belt aquifers.

“Ethanol plants consume roughly four gallons of water to produce each gallon of fuel, but that’s only a fraction of ethanol’s total water habit. Cornell ecology professor David Pimentel says that when you count the water needed to grow the corn, one gallon of ethanol requires a staggering 1,700 gallons of H2O. Backers of the Senate bill say that less-thirsty technologies are just around the corner, which is what we’ve been hearing for years.”

The Journal added that, “Slowly but surely, these problems are beginning to alert public opinion to the huge costs of force-feeding corn ethanol as an energy savior. The ethanol lobby is still hoping it can keep all of this under wraps long enough to shove one more big mandate through Congress, but the Members need to know the problems they’ll be creating. We hope that House conferees, who did not include a new mandate in their energy bill, insist that any final bill is ethanol-free.”

Keith Good

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